IT holds up well in private equity slump

Chasing the rainbow

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Global private equity investment for last year fell by almost 50 per cent from the all-time record high of US$199 billion in 2000 to US$100 billion in 2001, according to a study by investment house 3i and consultants PricewaterhouseCoopers published today.

The difficult equity and mergers and acquisition markets, low business confidence and the events of September 11 have all caused investors to become more shy of backing businesses but the survey revealed that technology investments held up better than might be expected. Despite frequent, and deserved, criticisms of over-hype in certain technology markets in 2000, IT is still - generally - seen as a solid investment proposition.

In 2001, technology investments totalled at least $53 billion or 53 per cent of the total. This is down slightly from their 55 per cent share in 2000 but significantly greater than their 40 per cent share ($61 billion) in 1999.

For sure this is a significant decrease, but hardly amounts to a meltdown.

In the survey, 3i/PwC attribute the decline (such as it is) to the "dot.com and internet debacle", reduced spending on IT by many corporations and poor revenues and earnings from technology conglomerates. Delays in third-generation wireless applications coming on stream and the current lack of exit routes, were also factors in this fall from grace.

Developments in technology continue and require financing.

According to the study, technology continues to offer opportunities in such areas as the mobile internet, where Europe has a lead over the USA, encryption and security software, nanotechnology and biotechnology, albeit at reduced valuations and expanded investment timeframes. These are areas 3i itself is investing in, cynics might want to note.

According to the study, the top ten countries for technology investment in 2001 were:

USA - $30.0 billion (VC only)

Canada - $2.9 billion

UK - $2.4 billion

Germany - $1.6 billion

China - $1.6 billion

Israel - $1.5 billion (VC only)

France - $1.1 billion

Hong Kong - $1.0 billion

Italy - $0.9 billion

India - $0.9 billion

Technology investments in Western Europe totalled $8.3 billion in 2001, down 38 per cent from 2000 levels. The UK led technology investments by amount and Germany led in terms of number of deals.

Altogether, 38 per cent of total investments in Western Europe were made in the technology sectors. Computer software was the largest individual category within technology, accounting for a third of investments in terms of both number and amount. ®